The report looks at the financial powers that the National Assembly for Wales should have, how accountable it is for its spending and how we ensure effective economic policy is rewarded. I welcome the report’s declaration that a number of taxes, such as air passenger duty and landfill tax, should be devolved. But more significantly, the report also recommends that by 2020, the Welsh and UK governments should share responsibility for income tax paid in Wales – and that the Welsh government should have the power to set the rate of its share. The Welsh Liberal Democrats have been calling for these changes since the National Assembly was established.

The completion of this report is a major Welsh Liberal Democrat victory. Kirsty Williams fought for this as part of the coalition deal and banged heads together when it looked like consensual terms of reference may not be developed. Labour and the Conservatives, who have a substantial number of devosceptics in their party ranks, did not drive this review forwards.

If the recommendations are introduced, for the very first time, a Welsh government will have a financial interest in making sure its job-creation strategies are actually effective. Liberalism means making sure that governments are accountable, not only at election times, but constantly. Accountability for performance is guaranteed if governments are financially rewarded for good government. The proposals to improve this accountability are drawn from the liberal tradition.

But devolution of income tax could well harm Wales if it is brought in without substantial reform of the Barnett formula, which allocates money between the UK nations and regions. A study by Gerry Holtham, a leading economist, showed that under the current formula, Wales receives less money than it would if it were an equally deprived region of England. I am clear that income tax cannot be devolved unless action is taken on this measure. Otherwise, we will not have the money available to other regions with whom we will have to compete. Wales will be taking a much bigger risk, but from a much lower base, than elsewhere and that is simply unfair.

The Labour Party are content with the current arrangement. The Welsh government is given money and if they are not able to achieve what they want, then they ask for a little bit more. This is begging-bowl politics and it is does not befit a mature nation. But it explains why they have not driven forward this agenda. Carwyn Jones, the First Minister, has made it clear that the government will not support income tax powers without reforming Barnett, and unless there is a referendum. So, we need to make the political progress necessary to reform the unfairness of the Barnett formula. Politically, we cannot proceed with this project without the Labour Party. A referendum on income tax powers would need the support of an Assembly and the Labour Party would hold an effective veto while they still hold thirty seats. So while it is hugely important to reform the Barnett formula because it is unfair, politically it is essential too.

I am clear that the Silk report is a victory for liberalism in Wales. We demanded the report’s production as part of the coalition agreement and it has produced a liberal agenda. But the test will be when we begin to implement that agenda. When a new Wales Bill receives Royal Assent and these powers are devolved – that is when we will have achieved a real liberal gain.

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